Posts tagged ‘Pension Scheme’

What’s happening?

The laws governing pensions provided to staff by employers are changing so that all employees will be enrolled in the pension scheme unless employees specifically opt out of it, compared to the current situation where all employees are offered the pension scheme but must apply to join it. This new regime is called “auto enrolment”.

What effect will it have on my organisation?

If a significant majority of your staff are already members of the staff pension scheme, then the change will make very little change other than to change the induction process for new employees. However for many organisations where staff have traditionally not joined the pension scheme, especially if this is through apathy rather than through a clear decision not to join, then this change could increase your staff costs in line with the employer contribution to the scheme – which for employers operating a final salary scheme could be as much as 20%.

When does it happen?

For the country’s largest employers the change has already taken place. The change is being rolled out, starting with the largest employers, over the next five years.

Your staging date will depend upon the number of employees registered for PAYE purposes and the PAYE reference code you use for paying over tax and national Insurance. For employers with fewer than 50 employees the roll-out starts in two years’ time.

What do I need to do?

First, you need to make sure that your staff pension scheme qualifies for registration for auto-enrolment. Most schemes that are open to all members will, and there is a tool available on the Pensions Regulator’s website, www.thepensionsregulator.gov.uk, which will help you.

Secondly, you need to look at what it would cost if everyone that is entitled were a member of the pension scheme, and then compare that with what you are paying now. This will give you a view of the potential extra cost the organisation will have to take on after auto-enrolment. Consider this in the context of your business. You may decide that it’s not a significant increase, in which case all you have to do is change your process for induction of new staff, and start talking to your existing staff about the change.

The next thing you need to think about is how many of your staff are likely to opt out of the scheme. Remember that you are not permitted by law to encourage employees to opt out in any way, so people have to make an effort to opt out – they need to make an application. However some employees may choose to opt out. Finding out by consulting your staff may be difficult without giving the impression of encouraging staff to opt out, so be careful.

However you may feel that this is an unacceptable increase in costs. In which case you need to plan very carefully what you do next, and you will probably need some specialist advice. See the next section for more details.

The next thing you need to do is to work out when you will need to make the change. This is called the staging date. There is guidance on this on the Pensions Regulator website.

Once you know what your staging date is, you can then start to plan the implementation. You will need to

Decide whether you want to continue with your existing pension, or change to a new one with revised terms;

Plan how you are going to tell your staff about the change. You will need to allow at least three months for consultation, especially if you plan to change your scheme;

Prepare changes to your induction process for new employees, so that they are told about the pension arrangements when they join, and contributions are deducted from their pay and paid to your pension provider from the start of their employment;

Set a process for those who wish to opt out of the pension scheme (it is good practice for this to be administered by the pension provider, so that there is no grounds for claiming that the employer encouraged staff to opt out);

Appoint a point of contact which must be notified to the Pensions regulator;

Start automatically enrolling staff into the scheme from the staging date and paying contributions over to the pension provider;

Register the pension scheme with the Pensions Regulator.

Changing your pension scheme

You may decide that your current pension scheme is not suitable for auto-enrolment. This might be because

Employer contributions are too high and you as an employer cannot afford to pay contributions for all staff;

Employee contributions are too high and few staff will be able to afford it; or

The scheme does not qualify for auto-enrolment.

When you have decided this you will need to take advice from an expert pensions adviser. You will need to aim for a pension scheme which will

Be affordable to you as an employer;

Be affordable to your staff; and

Meet the pensions Regulator’s conditions for auto-enrolment.

So it’s probably a good idea if you have a clear view of what you would consider to be affordable to both employer and employee before you talk to the experts. Remember that in order to be acceptable to the Regulator there will need to be minimum employer contributions of 3%, and minimum total contributions of 8%.

Next, you will need to think about what you want to offer to those already in the existing scheme. You will need to think about the impact both on existing staff, on those not currently in the pension scheme, and on new staff. Options would include:

Closing the scheme to all further contributions, and auto-enrolling members into the new scheme;

Closing the existing scheme to new members, allowing those already in the scheme to continue to contribute in the scheme, and auto-enrolling all other existing staff into the new scheme.

Either way, you’ll need to consult your staff and take their views into consideration when you make your decision. You need to allow at least three months for this process.

Conclusion

The arrangements around auto-enrolment are complicated. It’s important to make sure you understand the implications for your business, cost out the options, and leave yourself enough time to make alternative arrangements if necessary. This could involve extensive consultations with your employees or their representatives. So it’s worth starting your planning now to allow enough time to make a well-considered choice.

Need help?

The author of this post is an experienced Finance Director and Consultant and can help you to

Identify your Staging Date

Establish whether your current pension arrangements will meet the criteria of the Pensions Regulator after your staging date

Project the annual cost

Cost out some alternatives

Explain pensions to your staff

Melanie Digney at Tailored HR Limited is an HR professional who can help you

Explain and communicate the pension scheme’s details to all your staff

Consult with your employees about pension arrangements or arrange individual staff meetings with the scheme provider at your office to set up the scheme.

Put arrangements in place for employees who wish to opt out

Change your induction processes to reflect auto-enrolment

Provide advice on Employment Law

Antony Moyes of Moyes Financial Planning Limited is an Independent Financial Adviser authorised by the FCA to advise on pensions. He can

Help you select a pension plan

Advise your employees on investment options within the plan

Establish whether your current pension arrangements will meet the criteria of the Pensions Regulator after your staging date

Explain pensions to your staff

Register your pension scheme with the Pensions Regulator

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

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If you have a pension, then you are about to see a significant reduction in the amount of money you can put into it without paying tax.

From next April

The Government will slash the annual tax relief limit on pensions from £255,000 to £50,000. There will also be a reduction in the lifetime allowance on money that can be saved in a pension fund from £1.8 million to £1.5 million, which will come into effect from April 2012.

The Government hopes the changes will save it more than £4 billion a year, which it will use to tackle the budget deficit.

Warning

Experts have already warned that some people with long service in final salary pension schemes could suddenly face higher bills, particularly as the increase in accrued pension will now be multiplied by a factor of 16 instead of the current factor of 10.

However, the Government says that the changes would affect 100,000 pension savers a year, 80% of whom earned more than £100,000 a year, meaning that very few people earning less than that amount would actually have to pay any pension tax.

Utilising your allowance

Anyone with unused annual allowance from the last three tax years will be able to carry them forward if they are a member of a pension scheme during that period, meaning that if a pension contribution is more than £50,000 then they may not have to pay the annual allowance charge.

At George Hay, we can advise you on all aspects of pensions, including how the above changes might affect you.

For further information on whether you are getting the best from your pension, please contact us.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.